The rigid boundaries of the stamp duty relief offered to first-time buyers could be pushing people out of the London housing market, according to some industry voices.
The most recent ONS house price index data showed that monthly house price growth in London fell by 0.4 per cent, while on an annual basis it rose by just 0.3 per cent.
Sotheby’s International Realty head of residential Guy Bradshaw is frustrated that the exemption enjoyed by FTBs is not shared by “second steppers” and second home owners. He says: “House prices in London have now been falling for six consecutive months and this undoubtedly is due to punitive stamp duty costs.
“When will the government start listening to the industry and stop ignoring these figures? London estate agents have been banging the drum for a stamp duty reform for years and today’s figures clearly show a suffering market.”
However, some quarters are questioning the initiative’s suitability even for the FTB market, where it has largely been seen as a success.
L&C associate director of communications David Hollingworth points to research that his firm performed in the summer.
It showed that of those asked, 62 per cent believe that stamp duty should be removed for all FTBs, and that 38 per cent insist that the value of properties excluded from stamp duty should rise in line with house price gains.
“If we get regional price rises that outstrip the stamp duty exemption boundaries, you’ll start to see the benefits of what is a good giveaway disappear,” says Hollingworth.
In fact, L&C’s data shows that, over the next decade, just over half of the 52,002 properties in London that currently qualify for the exemption will drop out of the relief bracket.
Hollingworth insists that the government reviews the exemption arrangements in order to stop the value of the scheme eroding.
Haart estate agent chief executive Paul Smith goes further when asked how to get FTBs active in the city. He says: “Last year’s stamp duty cut acted as a lifeboat for hard-pressed FTBs when they needed it the most, and the positive impact it has had on the market is undeniable.
“However, these cuts are just a half-way house for aspiring buyers in London. These cuts mean that FTBs in the capital will see their cheque to HMRC reduced from £11,000 to £6,000 – this is just a snowflake off the iceberg for the many who are frozen out of home ownership.
“Research shows that 58 per cent of people who do not already own a home are saving nothing at all for a deposit each month to buy. For this cohort these changes mean nothing. Only a move towards 100 per cent per cent mortgages is a straightforward way to get young people out of renting and into homes.
“Even an increase to 95 per cent would save the average London first-time buyer £21,000 on their deposit bill,” he adds.
From April 2021, regional caps will be introduced to the Help to Buy scheme.
Intrinsic managing director Gemma Harle disagrees when asked if a mechanism of this type could be one way of refining the stamp duty exemption.
“It’s easy to single London out because there is such a difference between house prices in the city and everywhere else,” she says. “But does this variation exist in other parts of the country? Prices differences are narrower and are always changing, so you would need a flexible system… this would be difficult.
“But we need young people buying in the city,” Harle concludes.
Yorkshire Building Society strategic economist Nitesh Patel agrees that caps are not a solution, and that structural changes are needed to the housing market as a whole: “When compared to the previous threshold, FTBs already make a saving when buying a home worth up to £500,000. In 24 out of 33 London Local Authorities, the average FTB pays a price below £500,000.
“Measures such as caps would not necessarily help buyers in the long term because the London housing market is totally different to the rest of the country.
“London needs more homes, particularly for FTBs. Ultimately, increasing housing supply in the capital is a better solution to fixing London’s housing problem than tinkering with stamp duty.”